[PEN-L] Wondering about oil price & economy

[Eugene Coyle]

Oil prices and the economy?     On Tuesday the Wall St. Journal had a front page graphic relating BTUs to dollars of GDP. The head line and lead was: Retooling Keeps Economy Growing Despite Steep Increase in Oil Prices Though the surging price of oil is nearing a recent high and analysts foresee more increases ahead, greater energy efficiency and a streamlined manufacturing sector are giving the U.S. economy surprising resiliency.  I have some questions about this.  The declining ratio of BTU/$ of GDP is used to argue that the USA economy is less vulnerable to rising oil prices.  Put aside that the curve is flattening out.     It seems to me that the curve reflects, also, the shift of physical production abroad.  I. e. it takes fewer BTUs to produce a ring tone than an equivalent dollar value of swing sets. Question 1.  How to adjust the ratio of BTU/$ of GDP for the shift of production of physical products abroad?     As for the contention that the USA economy is less vulnerable to rising oil prices:  won't the producers abroad face the same world oil price and thus higher costs?  So, Question 2.  Will rising prices of imported goods caused by higher oil costs impact the CPI and PPI in the USA?  And so impact the USA economy after all?  (I realize the complexity of this one, but, other things being equal?) And then, Question 3.  As production is shifted abroad, will USA emissions of GHG decline?  I. e. will shifting to ring tones instead of swing sets result in fewer emissions of GHGs, dropping the ratio of GHG/$ of GDP, and GHG/capita?  While at the same time causing a rise in, say China, of these ratios? Leading to Question 4.  Will the world-wide emissions of GHGs rise as production is shifted from the USA abroad?  Are power plants and factories cleaner in the USA, so a shift abroad means dirtier production? What do you think? Gene Coyle